Goldman Sachs Analyzes PepsiCo’s Break-Up Value (PEP)

On Tuesday, an analyst at Goldman Sachs commented on the potential value of PepsiCo, Inc. (PEP) if it were to split its snack and beverage businesses, after spin-off rumors were fueled following news that Nelson Peltz amassed a stake in the company.

Goldman analyst Judy Hong speculated that if PepsiCo were to split, it would most likely be a three-way split between its snack, beverage, and nutrition businesses.

“We believe a three-way split-up makes the most sense strategically and as a way to unlock the most value,” said Hong. “Our updated SOTP work shows a theoretical value of $80-$81 under a three-way split.”

“A spin-merge could avoid tax leakage and lead to potential cost synergies – PEP’s SnackCo could merge with another snack company, and as along as PEP owns more than 50% of the merged entity, PEP can spinoff the New SnackCo to its shareholders in a tax-free manner,” she said.

However, Hong went on to say that it is unlikely that such a split would occur.

“While we do see some strategic and financial merit in splitting up PEP’s businesses, we are not convinced the business is ready to be split at this point given US beverage softness and a lack of scale for Int’l beverage and NutritionCo,” concluded the Hong.

Goldman Sachs rates PEP as “Neutral” with a price target of $77. This valuation suggests a slight downside to Monday’s closing price of $77.83.

PepsiCo shares were up 83 cents, or +1.06%, during Tuesday morning trading. The stock is up +19.84% over the past year.

The Bottom Line
Shares of PepsiCo (PEP) have a dividend yield of 2.89% based on Tuesday’s intraday trading price of $78.66 and the company’s annualized dividend payout of $2.27 per share.

PepsiCo, Inc. (PEP) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.